Some people seek out SBA loans because they believe they wont have to put up collateral. Rarely does the SBA approve a loan without collateral. If you own a house, you can expect that it will be used as collateral for your loan. If you have no equity in your home, you’re just as likely to be denied a loan as when applying to your local bank.
Again.. since the SBA isn’t actually loaning the money, you have to go through an internal process of being approved by both the SBA and the lending company.
If youre looking to get out of an SBA loan in the future, youll also find the process more difficult than a conventional loan. SBA lenders usually put a blanket lien on all assets making refinancing all the harder, even with good cash flow.
The upside of SBA loans are that they often require a smaller down payment, less collateral and allow for longer terms very important factors when launching a business and facing a repayment period for years to come.
The SBA will also typically get involved in the business venture and offer advice to mitigate its losses. A conventional loan is usually issued with the assumption that you know what you’re doing and you already have an understanding the best way to spend your money.
If you’re seeking out a small business loan, the best practice is to simply seek out the best rate. Your local bank might well have an SBA department and there’s certainly nothing wrong with seeing what they can offer you. Be sure to fully understand the SBA lenders credit criteria. Do your homework and compare loan offers. Don’t just assume that an SBA loan is in your best interest.